Does Cadet Pilot Program Make sense ?
Cadet Pilot Program
Cadet Pilot Program was started with the intent of maintaining a smooth flow of pilots in a rapidly expanding airline. On the one hand it made sure that the airline expansion continued in a planned manner and on the other it provided job security to the candidates. The concept of providing job security is questionable and contradictory in an expanding business environment. So, lets try to analyse it purely from a financial point of view.
Time Value of money
Many a times we make the mistake of not considering the time value of money but only considering the amount we are paying. This becomes a significant factor in a cadet program since huge lum-sum amounts are charged by the Airline. The below analysis is based on the pricing published by one of the Airlines in its cheapest Cadet Program where the total cost is projected under Rs 90 Lac. So, we will take for example that a person joins this cadet program in Jun 2019. Since the Program is for 2 years approx (104 weeks), this person will start earning salary in Sep 2021. Therefore, we can take 2021 as the base year for comparing the returns on the investment. We will compare the future value of the investments made by the candidate from 2019 -2021 and value of the salary earned by him in the next 7 years which is the contract period.
Future Value of Investment made Today
Value of this investment in Jun 2021 (at 8% nominal interest, , 70 INR = 1 US$ and approximate figure for period cycle)
Jun 2019 (1st Installment)
Sep 2019 (2nd Installment)
Jan 2021 (3rd Installment)
Mar 2021 (4th Installment)
Total Value of money Spent
1.57 Crore Rupees
Present Value of Future Salaries earned based on Benchmark Figures ( Take home after Tax deduction)
Value in 2021 (at 8% nominal interest)
Total Value of money earned
1.38 Crore Rupees
Total Loss to the Candidate is Rs 20 Lakh provide everything goes smooth with no complications in training, medical etc..
So over a period of 9 years a candidate has made a net loss of 20 lakh rupees. If i had this money in 2019 i would rather invest it wisely and in 9 years i could buy a plane & probably hire a pilot as well
What factors are missing in the calculations ?
This does not consider the risks such as medical unfitness, inability to pass tests etc. Can we calculate it differently ? Yes you can calculate future value of you earning and make the comparison at the end of 9 years. The result would be even more disastrous for the Cadet Program. So, this calculation is the best possible in favour of cadet program. Yes, you could become a Captain early by an year then that would reduce the loss little bit, but here we are talking about a financial decision based on generic numbers. In that context, financially the Cadet Program makes no sense. But yes, there are factors other than finance or else Ferrari won't be there in the market ! Choice is always yours.
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